Tackling the social tragedy of unemployment

It is my great pleasure to present the 2013 edition of the OECD’s Employment Outlook.

This report comes at a crucial time, as the economic recovery remains hesitant and uneven, and when over 48 million people are still out work in the OECD area. Since 2009, the unemployment rate has indeed remained stubbornly high – at around 8% on average in OECD countries - and is forecast to persist at this level well into 2014. In Greece and Spain, the jobless rate is close to 27%.

Unemployment is a social tragedy that we urgently need to address. But not all countries are in the same situation. Joblessness has actually fallen gradually in countries like the United States, Mexico and Japan. Within countries too, there has also been considerable divergence in employment trends among different groups. Understanding where unemployment is most severe and who has been hit the hardest is a crucial first step towards dealing with this scourge.

Youth unemployment has risen to alarming levels in some countries

The crisis has been particularly harsh for youth. In a number of OECD countries, unemployment among the young has risen to around 40% in Italy, Portugal and the Slovak Republic, 55% in Spain, and exceeding 60% in Greece. Let us pause for a moment on this number, 60%!

In some emerging-market economies, unemployment is also high; at 52% in South Africa, for example. In other countries, high informality in the labour market also condemns many youngsters to low-paid, precarious jobs with little social protection.

Of particular concern in all countries are those youth who are neither in employment nor in education or training (the so-called “NEETs”). They risk being permanently scarred, as they face long-term difficulties in finding secure and well-paid jobs. In the last quarter of 2012, this group accounted for 15.2% of all youths aged 15 to 24 in the OECD area.

Helping youth get off to a good start in their careers is a key challenge. We therefore launched an Action Plan for Youth inour OECD Ministerial Meeting last May. This plan calls for actions across a broad front. They combine short-term measures to boost job creation for youth with more in‑depth reforms to enhance access to jobs, improve education outcomes and strengthen the compatibility between the skills acquired by students and those needed by business.

In contrast to the situation of youth, and to the experience of previous deep recessions, the proportion of older people in employment continued to rise in most countries. Clearly, this increase did not come at the expense of the younger generation.

Thus, creating space for youth by encouraging older workers to leave the labour force would be a very expensive mistake, especially in the context of an ageing society. So far, governments have resisted pressures to bring back early retirement schemes either explicitly or implicitly – for example through relaxed eligibility rules for disability and unemployment benefits.

Concerted action must be taken to improve labour market prospects for all

A key message of this year’s Employment Outlook is that concerted action must be taken to improve labour market prospects for all groups. This can – and must – be done.

First of all, it is essential to re-ignite or strengthen economic growth and job creation. This requires working on two main fronts: confidence-building and financial sector repair.

Confidence is key for both investment and households spending. It calls for credible medium-term frameworks for tackling debt, while taking care to minimise any negative impact of fiscal consolidation on employment growth in the short term. Financial sector repair is needed for banks to resume lending to households and firms. Put simply: without credit, it is difficult to create jobs.

Second, these macroeconomic policies need to be supported and strengthened by growth-enhancing structural reforms. This includes reforms to the labour code.

There is no easy formula for designing Employment Protection Legislation. But we know that excessive protection for permanent contracts, if combined with insufficient protection for workers on temporary contracts, can result in a highly segmented labour market. This is the worst of both worlds: a situation that condemns some workers to precarious jobs, often interspersed with spells of unemployment.

In this edition of the Outlook, we have updated and improved our indicators of Employment Protection Legislation in all OECD countries and major emerging-market economies.

Our work shows that a number of countries, including Greece, Italy, Mexico Portugal and Spain, have indeed introduced ambitious reforms to relax very restrictive dismissal rules for workers on permanent contracts. They did so most importantly, by clarifying and speeding up procedures.

These recent reforms should help ensure that labour markets respond more flexibly to changes in economic opportunities. They should also enable a more even distribution of adjustments amongst different segments of the workforce.

Our analysis also shows that these recent measures are in sharp contrast to the reforms of the 1990s and early 2000s, which focussed on liberalising temporary and other forms of atypical contracts, while leaving regulations on permanent contracts unchanged. Those reforms contributed to further duality in the labour market, instead of tackling the root causes of segmentation.

Activation strategies: helping and encouraging the jobless to find employment

Our report reviews approaches adopted by seven different countries to combine adequate income support for the unemployed with effective re‑employment services. These countries also introduced a range of mutual obligations to help and encourage the jobless to find employment. Let me share with you some of the lessons learnt.

First, institutional arrangements matter. Employment outcomes and services for clients can be improved by merging public employment services and benefit agencies to create a “one-stop shop”. Greater coordination between different levels of government can also make a real difference.

Second, the effectiveness of employment services can be improved through more robust performance management. For example, Australia and Switzerland rate the performance of local employment offices after adjusting for differences in client profiles and local labour market conditions.

Third, sufficient resources for cost-effective labour market activation policies should be available. Resources per unemployed jobseeker have declined by almost 18% since the start of the crisis through 2011. This raises concerns about the ability to prevent structural unemployment from gaining root.

Putting effective activation strategies into place is not only important to deal with the crisis-induced rise in unemployment but also for coping with on-going structural change. In good or bad times every year, between 2 to 7% of all OECD workers are forced to leave their jobs for involuntary reasons. Providing effective job search assistance and necessary skills upgrading is vital to prevent discouragement and early withdrawal from the labour market, especially for older workers who lose their jobs.

In emerging-markets and many developing countries, the major challenge in promoting an effective labour market activation strategy is to broaden the coverage and the scope of social protection. It is important to protect the most vulnerable social groups and allow them to invest in the human capital of their children and participate in productive activities.

Ladies and Gentlemen,

Persistently high unemployment is threatening to leave a permanent scar in our societies. People who have been unemployed for long periods and who are in their teens or early 20s are more likely to develop a range of social problems and face poor employment prospects. We cannot afford this waste.

The road ahead may be challenging, but with the right policy tools and effective and inclusive multi-lateral cooperation, our governments can put millions of people back to work.

The OECD is fully devoted to helping you in this battle to design, promote and set in motion better labour market policies for better lives.